Somerset Entertainment Income Fund - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from the requirement for an income trust to include certain financial statements of acquired businesses in a business acquisition report provided that: (i) the business acquisition report includes the financial statements pertaining to the acquired businesses that were included in the income trust’s final prospectus; and (ii) the financial statements that were not included in the business acquisition report are filed separately by June 30, 2005.
The relief was granted as a short-term accommodation measure - Staff will not be recommending this type of relief going forward and, as a result, this decision should not be viewed as a precedent in Ontario - Issuers should plan to file complete business acquisition reports that include all required financial statement disclosure within the timeline prescribed by Part 8 of National Instrument 51-102.
Instrument Cited
National Instrument 51-102 Continuous Disclosure Obligations, Part 8
Ontario Securities Commission Rule 41-501, General Prospectus Requirements
[Editor's note: the text of the above headnote was amended after publication in the OSC Bulletin.
The original text can be found in the print OSC Bulletin at (2005) 2821 OSCB, 4723, May 27, 2005]
May 9, 2005
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA, SASKATCHEWAN, MANITOBA, ONTARIO,
QUÉBEC, NEW BRUNSWICK, NOVA SCOTIA,
AND NEWFOUNDLAND AND LABRADOR (the Jurisdictions)
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
SOMERSET ENTERTAINMENT INCOME FUND (the Filer)
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the Decision Maker, and collectively the Decision Makers) in each of the Jurisdictions has received an application from the Filer for:
(i) a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from the requirements prescribed by section 8.4 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) that interim financial statements for Somerset Entertainment Holdings Inc. (Somerset) for the period ended February 28, 2005 be included in a business acquisition report (a BAR) to be filed by the Filer in connection with the Filer's indirect acquisition of all of the outstanding common shares in the capital of Somerset (the Requested Relief); and
(ii) in Quebec, a revision of the general order dated March 26, 2004 which revision will grant the Requested Relief.
Under the Mutual Reliance Review System for Exemptive Relief Applications,
(a) the Ontario Securities Commission (the OSC) is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Unless otherwise defined, the terms herein have the same meaning set out in National Instrument 14-101 Definitions.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a trust established and governed pursuant to a declaration of trust dated February 8, 2005, as amended and restated on March 18, 2005.
2. The Filer is a reporting issuer in all of the provinces and territories of Canada and the Units of the Filer are listed and posted for trading on the Toronto Stock Exchange.
3. Although the Filer is also a reporting issuer, or the equivalent, in the Province of Prince Edward Island, the Yukon, the Northwest Territories and Nunavut, an application is not being made to the securities regulatory authorities in these jurisdictions as NI 51-102 has not been adopted in such jurisdictions.
4. Although the Filer is also a reporting issuer in the Province of British Columbia, an application is not being made in that jurisdiction as BC Implementing Rule 51-801 exempts issuers from part 8 of NI 51-102 in British Columbia.
5. The Filer is not in default of any material requirement of the Legislation and is not on the list of defaulting reporting issuers maintained pursuant to subsection 72(9) of the Securities Act (Ontario) or equivalent provisions of the Legislation.
6. On February 9, 2005, the Filer filed a preliminary prospectus (the Preliminary Prospectus) for an IPO which disclosed, among other things, that the Filer has been established to acquire and hold: (i) the Units of Somerset Entertainment Trust (Ontario) and the Somerset Entertainment Series 1 Trust Notes; and (ii) all of the outstanding shares of Somerset Entertainment GP Inc. Further, the Preliminary Prospectus disclosed that the Filer was created to indirectly acquire and hold all of the outstanding common shares in the capital of Somerset, the leading North American producer and distributor of specialty music sold through non-traditional retailers using interactive displays. A preliminary MRRS decision document, evidencing the issue of a preliminary receipt by the securities regulatory authority in each of the Jurisdictions, was issued by the OSC on February 10, 2005.
7. On February 25, 2005, the Filer filed an amended and restated preliminary prospectus (the Amended and Restated Preliminary Prospectus) for the IPO which contained substantially the same disclosure as the Preliminary Prospectus. MRRS decision documents, evidencing the issue of an amended preliminary receipt by the securities regulatory authority in each of the Jurisdictions, were issued by the OSC on February 25, 2005 and February 28, 2005 for the Yukon Territory.
8. On March 11, 2005, the Filer filed a final prospectus (together with the Preliminary Prospectus and the Amended and Restated Preliminary Prospectus, the Prospectus) for the IPO which contained substantially the same disclosure as the Amended and Restated Preliminary Prospectus. Final MRRS decision documents, evidencing the issue of a final receipt by the securities regulatory authority in each of the Jurisdictions, were issued by the OSC on March 14, 2005 and March 15th, 2005 for Newfoundland and Labrador.
9. On March 18, 2005, the Filer completed the Acquisition.
10. The prospectus requirements under the Legislation sets out the financial statements required to be included in a prospectus, including financial statements relating to "significant acquisitions".
11. Compliance with the prospectus financial statement requirements under the Legislation does not necessarily satisfy the financial statement requirements in section 8.4 of NI 51 102.
12. The Prospectus was filed seven days prior to the closing of the IPO and the Acquisition. The Prospectus contains full, true and plain disclosure of the Filer and the Acquisition and the financial statement disclosure for significant probable acquisitions pursuant to section 6.4 of OSC Rule 41-501 in respect of the Acquisition. Accordingly, the Prospectus contains: (i) the audited balance sheet of the Filer; (ii) the audited consolidated financial statements of Somerset for the years ended August 31, 2004, August 31, 2003, August 31, 2002 and unaudited interim consolidated financial statements of Somerset as at and for the three-month periods ended November 30, 2004 and November 30, 2003; and (iii) the unaudited pro forma consolidated financial statements of the Filer as at and for the 12 month period ended December 31, 2004 (the Prospectus Financial Statements).
13. The Acquisition constitutes a "significant acquisition" of the Filer for the purposes of NI 51-102, requiring the Filer to file a BAR within 75 days of completing the Acquisition pursuant to section 8.2 of NI 51-102.
14. Unless otherwise exempt, the Filer is required, pursuant to section 8.4 of NI 51-102, to include in the BAR prepared in respect of the Acquisition: (i) statements of income, retained earnings and cash flows for Somerset as at and for the years ended August 31, 2004 and 2003; (ii) balance sheets for Somerset as at and for the years August 31, 2004 and 2003; (iii) interim financial statements for Somerset for the period ended February 28, 2005; (iv) pro forma statements of income for the Filer as at and for the 12 month period ended December 31, 2004; and (v) a pro forma balance sheet for the Filer as at and for the 12 month period ended December 31, 2004.
15. No material change in the financial condition of the Filer or Somerset occurred between the date of the Prospectus and the date of the Acquisition.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:
(a) the BAR filed by the Filer includes the Prospectus Financial Statements; and
(b) the Filer files in the Jurisdictions by June 30, 2005 unaudited interim financial statements for Somerset for the period ended February 28, 2005.
"Iva Vranic"